Understanding the risks of unauthorised building works before buying or renting property in Hong Kong

2019-05-28

• As additions or alterations may affect the safety of a property and may render the title defective, agents should inform their clients of any such orders registered against the property and the risks involved

According to the Buildings Ordinance, additions or alterations to buildings made without the prior approval of the Building Authority may constitute unauthorised building works (UBW) and it may issue an order requiring the property owner to demolish/alter the UBW within a specified period.

In most cases, the building order will be registered at the Land Registry against the property. Undischarged building orders are encumbrances on the property.

In view of the fact that UBW may affect the safety of a property and may render the title defective, property agents should inform their clients of any such orders registered against the property and the risks involved. They should also advise their clients to seek legal and professional advice before proceeding with the transaction of such property.

I would like to share a case regarding building orders so as to remind both property agents and consumers the importance of acknowledging the undischarged building orders registered in the Land Register.

In the case, the estate agent did not inform her purchaser client that the property had four undischarged building orders registered in the Land Register even though she knew about it during the viewing of the property by the client. Before signing the provisional agreement of sale and purchase (PASP), the client read the land search record and found the four undischarged building orders.

He asked the agent about them and in response, the agent told him that those orders were about general building maintenance. However, one of the orders was actually about the property being classified as a “Dangerous Building”. Moreover, the agent neither informed the client about the risk of purchasing this property with these building orders nor advised him to seek legal advice before signing the PASP. Later, the purchaser found out the truth from his lawyer and then lodged a complaint with the Estate Agents Authority (EAA).

The EAA disciplinary committee found that the estate agent failed to comply with the code of ethics issued by the EAA, which stipulates: “Estate agents and salespersons, in engaging and accepting an appointment as an agent, should protect and promote the interests of their clients, carry out the instructions of their clients in accordance with the estate agency agreement and act in an impartial and just manner to all parties involved in the transaction.”

The committee decided to reprimand the estate agent and impose a fine of HK$10,000 (US$1,270). A condition was also attached to her licence requiring her to obtain 12 points from the continuing professional development (CPD) scheme in 12 months, of which at least three CPD points must be acquired from seminars or lectures on the land search subject.

To protect their clients’ interests, property agents should carry out land searches against the properties concerned and the land search records should be carefully checked to see if any order issued by the Building Authority requiring demolition/alteration of UBW has been registered and, if so, whether the order has been complied with. They should inform the clients the results of the land search accordingly.

In the case of knowing the existence of UBW in the property concerned, property agents should remind their clients of the risks involved in the purchase or leasing of such property. Such risks would include the risk of the government exercising its right of re-entry hence rendering the title of the property defective; the government issuing an order requiring the owner to remove the UBW within a specified period and the risk of not being able to obtain any or sufficient bank mortgage loan to complete the purchase of the property etc.

In addition, property agents should remind their vendor clients that unless otherwise agreed in the PASP of the property, the purchaser may rescind the purchase and claim damages for breach of contract on the grounds that UBW may render the title defective. Hence, property agents should remind both their vendor and purchaser clients to seek legal advice before proceeding with the transaction to sign the PASP.

On the other hand, prospective property purchasers are advised to read the land search record copy provided by the estate agent carefully to see if the property concerned involves any encumbrances or undischarged building orders. Likewise, they should seek legal advice on the risks involved before proceeding with the transaction.